EMEA News
More Doubt Cast on Deeper Oil Cutbacks as Analysts, Investors Loose Faith in "Fragile" OPEC
Another week, another round of critical derision of the Organization of the Petroleum Exporting Countries (OPEC) by industry and the analytical community - with one observer going so far as to liken the cartel to an addled senior in critical need of late-life care.
Although chances were always slim-to-none that OPEC would augment the extension of its production cutbacks with much-needed deepening of the cuts, the possibility gained some traction - at least in terms of media reporting - last week, when Iran teased that more cuts may be a possibility.
But Yasushi Kimura, president of the Petroleum Association of Japan, dismissed the notion on Monday, stating, "Even if OPEC makes additional cuts right now, it would not have much impact.
"Without a clear impact, it would be difficult for OPEC to move... judging from the current situations, they would likely be monitoring situations for the time being as they just extended it [the output cut deal] by nine months."
Kimura charitably added that "At this price level, global oil demand should steadily increase," and that the speed of global oil demand growth should exceed the pace of incremental production from the US and others.
Far more scathing in his opinion of OPEC was Julian Lee, oil strategist for Bloomberg Gadfly, who suggested that the group "appears in urgent need of late-life care: it shows little understanding of where it is, how it got there or where it's going.
"While it still manages to collect new members here and there, its core group looks more fragile than at any point in nearly 30 years."
Lee condemned the cutback initiative as an exercise in futility, with players sacrificing volume and earning less for each barrel they produce; he dismissed outright the notion of deeper cuts, pointing out that "just sticking to current output levels could be difficult for the rest of 2017."
He also noted that rifts are developing among core Middle East members (one being the Saudi Arabia/Qatar conflict), and that the cartel overall seems to have lost touch with reality: "Ministers say higher prices are needed to pay for investment in future production capacity, issuing dire warnings of a future supply crunch; they said the same thing to justify prices soaring above $100 a barrel in 2008.
"It wasn't true then, and it may not be true now."
Lee's contention that OPEC is "confounded by the world and increasingly irrelevant" is apparently shared by hedge funds, which have abandoned all hope that OPEC will rebalance the oil market and slashed formerly bullish bets on crude futures and options, according to John Kemp, columnist for Reuters.
Kemp on Monday reported that Hedge fund managers cut their net long position in the three main futures and options contracts linked to Brent and West Texas Intermediate by 109 million barrels in the week to June 20: "Fund managers now hold just two long positions for every one short position, which ranks among the most bearish positions since oil prices started to tumble in the middle of 2014."
He went on to state that "Short positions across the three major Brent and WTI contracts are now running at the highest level since August 2016 and close to the record short position established in January 2016, just as oil prices reached their lowest point in this cycle."
Still, there are some learned experts who think that as bad as fundamentals may be, market reaction is not justified: last week Phil Flynn, senior market analyst at Price Futures Group Inc., went on record as stating "It's becoming bearish mania: I think they're overdoing it."
